Sears has long been a top seller of home appliances in the US,
and with those appliances, the retailer has sold countless
warranties.

But within the last decade, Sears' sales have plunged and now
speculation is growing that the company could go bankrupt.

That has left many customers like Barrera wondering: what will
happen to my Sears warranty?

Sears says it will honor its warranties.

"We are a leader in the service contracts industry and
proudly stand behind our product," a Sears spokesman told
Business Insider last year. "Sears, as well as any other company
that legally sells service contracts, is required to meet
regulatory requirements designed to provide adequate resources to
fulfill service contracts into the future. We will fulfill our
commitment to our customers and members."

But according to bankruptcy lawyer Corali
Lopez-Castro, there's a possibility warranties would be
dissolved in the event of a Sears bankruptcy.

"The warranties are going to be a huge issue,"
Lopez-Castro, a partner at the Florida-based law firm
Kozyak Tropin & Throckmorton, told Business Insider.
"There's a real risk that they will not be honored."

source

Jim Young/Reuters

She
said gift cards and rewards points earned through Sears' Shop
Your Way loyalty program could also be erased.

"I would advise customers to redeem their points now," she said.

If Sears filed for Chapter 11 bankruptcy protection, the fate of
its warranties and rewards points would be decided in court.

Sears would have a lot of creditors to pay - including its
suppliers - before customers and their outstanding warranties and
loyalty points would be considered, she said.

Filing for bankruptcy protection allows companies to
reorganize by restructuring their debts or selling assets to try
and stay in operation.

Historically, shoppers often fail to recoup the money
racked up through loyalty points and left outstanding on unused
gift cards during retail bankruptcies.

When the sporting goods retailer Sports Authority filed for
bankruptcy in 2016, the company petitioned a judge to allow it to
honor its gift cards - which had an outstanding balance of nearly
$93 million - and loyalty points throughout the restructuring
process.

Eventually, the company went out of business and the value
of unused gift cards was lost.

Lopez-Castro believes a similar fate awaits Sears if it files for
bankruptcy because the underlying retail business is ailing.

"It's not just about deleveraging their balance sheet," she said.
"You have to actually deal with the operations, which is a much
bigger problem."